QUESTION 2 (15 Marks)

Seri Bhd is developing a project on health product in Kedah. Below are the achievements of the projects throughout the decade. Seri Bhd had started a project to identify the properties of the Neem plant in the year 2013. Seri Bhd intended to come out with cash generating projects.

The cost incurred on this project was RM500,000. In the year 2014, Seri Bhd identified several products that could be made from the leaves and bark of Neem plant which has incurred RM990,000. Seri Bhd was keen to develop a cure all ointment or cream that would cure all external injuries and pimples.

Seri Bhd decided to concentrate on the cream-making project and continued to develop a sweetsmelling cream that would be readily accepted by various customers. The project was still in progress in 2015. Market research indicated that the cream was very expensive and the fragrance was not viewed favorably by the majority of those surveyed. This has incurred the cost of RM300,000 In the year 2016, further work was done and now the cream was acceptable to consumers who were anxiously waiting for launch of the product.

The cost incurred was RM250,000 Factory building was completed at a cost of RM10 million and equipment costing RM2 million was acquired in the year 2017. Production of the cream had started on 1 July 2009. Seri Bhd expected the useful life of the cream to be indefinite. There was an active market for the intangible asset and there were active offers for the rights for RM600,000 The cream known as Osem entered into the market in 2020 and Seri Bhd expected to be the market leader for the first two years and to enjoy economic benefits for another three years.

a) Explain to Seri Bhd the criteria that need to be satisfied before expenditures on assets can be recognized as intangible assets under MFRS138.

b) Discuss the accounting treatment for the above scenarios